Tuesday, September 18, 2012

Bigger Is Not Always Better - Why Bigger Organizations Are Increasingly Risk-Averse And May Be Losing Ground.

The lines are drawn, and will be etched more deeply in the sand between the larger, well-established and cash flow positive (even if this cash flow comes from subsidies or debt) conglomerated industrial and financial juggernauts and the entrepreneurial and emerging enterprises in terms of 1) aversion to risk or change, and 2) early adopters of technological and ideological "mini-paradigm" shifts. In a futurescape of continued disruption, business failures and government impotence, smaller and smarter are the winning attributes

During the next 18 to 30 months, the divide between the corporate establishment and the innovative and aggressive entrepreneurial constituents of the supply side [ both in the services sector and in the manufacturing and production sectors] of the world's national economies will widen. With the advent of crowdfunding and other alternative capitalization mechanisms, and with a public wanting to see a disruptive change in the way the wasteful and abusive (perceptually) entrenched oligopolies and monopolies, the larger, publicly-traded institutions run by avaricious boards of directors accustomed to a wealth-padded lifestyle, most all significant advances will be made by the smaller, less risk averse firms.

Big firms with ticker symbols are due to flounder quite a bit, regardless of market share and preferential governmental treatment due to several key factors

This is a function of a number of factors, not the least of which is a basic business law (as yet to be endorsed by the risk management and trend-watching pundits and the companies which employ them -

1) Castle's Second Law Of Practical Risk Management: Entrepreneurs, Strategic Planners and Project Managers, as well as their affiliated experts and teams should note that in many cases, the same given risk factors weigh much more heavily (either in fact or perceptually) against the benefit factors in a larger, more 'multi-cellular' organization than in its smaller, less-evolved counterpart.

2) Inertia and subsidies foster perpetuation of existing policies and even encourage them. Governmental agencies, central banks and barriers to the cost of entry by potential competition have encouraged their boards to continue what they have been doing. The U.S. government, for example, have kept some major enterprises alive in a money-printing, taxpayer-squeezing "Jurassic Park." These dinosaur companies still roam the earth because they have not been hit by a meteor shower of disruption and an interruption in their allowances;

3) Smaller enterprises can pivot while their larger, older counterparts are more like closed-minded, over-confident Goliaths. These companies would be felled by a single round from a slingshot fired by a crowdfunded or incubated "David." Muscularity and size do not necessarily triumph over speed and agility. Smaller firms are more receptive to new ideas, keeping them agile.

4) Traditional funding sources are drying up for these big behemoths as the tax base in industrialized nations begins to disintegrate due to a combination of unemployment and brain drain, while non-bank alternatives, international co-ventures, and public capital (in small increments and donations) are helping the smaller, harder-working enterprises to bring their products and services to market;

5) Many of these larger firms will either wage war against each other, or be bought out as bargains by Asian entrepreneurs and investment groups while the emerging enterprises are beginning to take flight. And more and more launches of smaller companies will take flight with the help of incremental, non-institutional investments by the general public through non-trade-able financings. Smaller private companies can take actions without the fear that a small failure, or some non-profitable time consumed in an exercise of trial and error will hurt their stock value. They are more interested in revenue growth and profit margins than in what the financial analysts and rating services have to say.

The populaces of the respective industrialized nations want to see more jobs, and they are starting to become increasingly excited about slaying the Goliaths and in financing David's techno slingshot or magic bullet.

As capital access to the entrepreneurial and emerging enterprise sector becomes increasingly liberalized, the only way that the juggernauts of the sad past will be able to get ahead will be through the rapid acquisition of these smaller companies and the separation of these industrious engines of employment from the corporate culture of the dinosaurs -- particularly the ones who are in a waiting pattern, or are standing in a plush version of a government assistance breadline with velvet ropes to keep these creatures from pushing each other out of the line.

The only interesting stock plays remaining for listed firms are the ones about to receive government aid, pricey consulting or military contracts, or the ones which are widely traded publicly but have seen the wisdom of an acquisition binge. It held Bill Gates' organization together for quite some time, now, didn't it?